global Tax Maryland and Washington Expand Sales Tax to Technology and Service-Based Businesses in 2025 October 16, 2025 Recent law changes in Maryland and Washington significantly expand the range of taxable services. Depending on your business, products or services that were previously exempt may now be subject to sales tax. Here’s what you should know. Attention Maryland and Washington based businesses…if your business offers technology or service-based solutions, you could now owe sales tax starting in 2025. Let’s review the details. Quick Takeaways Maryland: A new 3% sales tax applies to certain technology-related services effective July 1, 2025.Maryland: Software as a Service (SaaS) purchased or licensed solely for commercial use in an enterprise computer system is now taxable.Washington: Retail sales tax will apply to additional services, including advertising, custom software, IT, and security effective October 1, 2025.Washington: Exclusions from the definition of digital automated services, such as data processing, have been repealed. Data processing will now be taxable in Washington. Maryland (Effective July 1, 2025)Maryland has expanded its sales and use tax base to include technology-related services previously exempt from tax. A 3% sales tax rate now applies to services under the following NAICS codes:518: Data processing, hosting, and related services519: Information services5415: Computer systems design and related services 5132: Software publishing If both the general 6% sales tax rate and the new 3% rate could apply to a transaction, the higher rate must be applied. Note: even if you classify your business using a different NAICS code, the MD Department of Revenue may view it differently and apply one of the above codes. Be sure you are diligent in your classification and can support your selection.For example:SaaS qualifies as a digital product (taxed at 6%) and now is taxable as a software publishing service (taxed at 3%).Previously, SaaS purchased or licensed solely for commercial use in an enterprise computer system was excluded from tax.Under the new law, SaaS sold to individuals remains taxed at 6%, while SaaS sold for commercial use in an enterprise computer system is now taxed at 3%.Washington (Effective October 1, 2025)Washington is expanding retail sales tax to cover many previously untaxed services. Businesses must begin collecting sales tax on:IT services (help desk, in-person training, network support, data entry, data processing)Custom website developmentCustom softwareInvestigation, security, monitoring, and armored car servicesTemporary staffing servicesLive presentationsAdvertising servicesAdditionally, Washington has repealed exclusions to the taxability of digital automated services, including:Services involving primarily human effortLive presentationsAdvertising servicesData processing servicesThere is an exclusion for sales between members of an affiliated group.What This Means for BusinessesIt is important to review your service offerings to determine if these changes impact your business. You may also want to assess whether you are missing other taxable services in states where you operate. Consider working with a tax advisor to evaluate if your services are subject to sales tax and how to best source your services.FAQsHow does Washington’s change affect businesses? Many service providers, such as IT consultants, software developers and staffing firms must begin charging and remitting sales tax starting October 1, 2025.Does this change impact Washington B&O? Yes. If you previously reported B&O at the "service and other" rate, you must now report at the retailing rate.What should businesses do now? Review your service offerings to determine if they are taxable under the new Maryland or Washington rules.How do these changes impact multistate businesses? Taxability rules vary widely by state. Businesses operating in multiple jurisdictions should evaluate where their services may now be subject to sales tax. Customers within a certain state or tax jurisdiction are key indicators.
